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The Good, the Bad, and the Ugly

July 21, 2017 0 Comments

Part the First: Auto Part Makers Worried About NAFTA Exit

The Trump Administration is finally set to renegotiate the North American Free Trade Agreement as promised during the campaign last year. After some threats and setbacks, the lingering concern is that the renegotiation could actually drive up vehicle costs in the U.S. rather than bring back any jobs.


The Detroit Free Press published an article on a study that reiterated that concern:

According to Mosquet, leaving NAFTA would lead to the loss of about 25,000 to 50,000 jobs at U.S. auto suppliers.

Why? Because Mosquet says ending NAFTA would result in higher vehicle prices leading to a decline in car sales and an increase in prices and that would lead to decline in parts produced by auto suppliers with plants in the U.S.

The study estimated U.S. tariffs in a range from 20% to 35% would add $16 billion to $27 billion annually to costs at automakers and their suppliers. A 20% tariff would increase the production cost per vehicle by $650.

President Donald Trump, who campaigned on the slogan “America First,” has said he wants to bring back automotive jobs that have moved to Mexico. Earlier this week, the Trump administration released its negotiating priorities for talks with Mexico and Canada to negotiate a new agreement.

The Trump administration would like to complete a renegotiation of NAFTA by the end of this year, before elections take place in Mexico next year.

The study asserts that NAFTA has helped the U.S. auto industry be more efficient and helped the North American region to stay competitive with Europe and Asia.

Part the Second: The Anti-Sedan

Sedan sales have been – to put it lightly – in a downward trend. With low gas prices, American consumers are leaning towards trucks and crossovers and SUVs – but automakers aren’t giving up on the sedan.

Take, for instance, the 310 horsepower 2018 Buick Regal GS. It comes with a V6 and is technically a hatchback, according to Jalopnik, and it is definitely different.

While it may not be able to outpace SUV sales, different is kind of the point, says The Detroit News:

Buick brand sales are up 5.9 percent for the first six months this year, but Regal sales have fallen by nearly 30 percent year-over-year to about 6,500.

Dave Sullivan, manager of product analysis for AutoPacific Inc., said the research firm expects about 28,000 Regals to be sold in their first full year on the market, a good figure for the brand but below historical highs for the Regal.

“The Regal is kind of almost the anti-sedan,” he said. “It’s not something that’s going to be for everyone. A Sportback body style is unique, but I think that’s part of the appeal for it.”

Another good example of this new take on the sedan is the new 2018 Honda Accord, a manual fastback. Again, it’s a different direction, but the risk could pay off.

Part the Third: Dropped the “Plug-In”

Automotive News noticed that Chrysler has stopped calling its electrified minivan, the Pacifica Plug-In Hybrid, by its full name: in most places, it’s just the Hybrid. Why the change? According to Jalopnik (and Automotive News), Americans are scared of the “plug concept and running out of juice.”

Well, most Americans. California is the exception here.

Fiat Chrysler Automobiles has taken a curious approach to marketing the only minivan in the U.S. that can run on a rechargeable battery: just call the Pacifica model a hybrid, and leave out the plug-in part.

The omission is a deliberate one by the automaker’s marketing team because so many Americans still associate the word “plug-in” with risk of running out of battery. It will make one exception though, starting Thursday, in a single state: California.

The contingent of California buyers that are interested understand the value of plug-in hybrids, said Jessica Caldwell, a Santa Monica-based analyst with auto-market researcher Edmunds. In addition to being more fuel efficient than conventional hybrids, they qualify for bigger government incentives.

“In California, it’s not seen as something that’s negative,” Caldwell said of plug-in hybrids. “It’s seen as like ‘that’s cool, that’s progressive.’”

Part the Fourth: The Lithium Supply Issue

Allana Akhtar wrote a piece on raw materials shortage (particularly lithium and cobalt) and how it could kneecap the burgeoning electric car market. Additionally, Reuters published a story about the shortage and how lithium suppliers are working on the problem, but no one has really figured it out yet – which will be a huge problem in a few years.

If it is being wrong-footed by the speed of change in lithium battery usage, it’s a fair bet that everyone else is struggling to make sense of such dynamic fundamentals.

The potential for supply-demand gaps to open up over the coming decade is significant.

Even a hardening consensus that there will be enough supply for the next two or so years rests on a series of questionable assumptions about how efficiently new supply can be brought on stream and then integrated into the existing production chain.

Beyond that short-term timeframe, the uncertainties just grow ever larger.

Joe Lowry, lithium industry consultant and commentator, takes the view that even with the recent spate of new project announcements, it is quite possible that a “supply shortage will cause significant issues in the battery supply chain by 2023.” (“Lithium Investment at the Crossroads”, July 17, 2017).

Even relatively advanced projects are still struggling for finance despite all the media hype around lithium, according to Lowry, while Tesla’s charismatic chief executive Elon Musk “seems to think that if he builds cars, the lithium will come.”

According to Jalopnik’s Patrick George, “That is a lot to assume!”

Part the Fifth: Volvo Linking Up With Lynk

Lynk & Co, Chinese automaker Geely’s “ambitious experiment,” is joining up with Swedish automaker Volvo – a good move for them. From Automotive News:

Volvo also will set up a joint venture with its Chinese parent, Zhejiang Geely Holding, to share existing and future technology with other brands in the Geely family.

“We want to have a say in the further development of Lynk & CO, especially as this will be a company that will share a lot of technology and components with Volvo,” Volvo CEO Hakan Samuelsson told Automotive News Europe.

Zhejiang Geely will still control 50 percent of Lynk & Co., with the other half of the company divided between Geely Automotive and Volvo brands. According to Samuelsson, the actual percentage held by each brand still “needs to be determined.”

About the Author:

The DrivingSales News team is dedicated to breaking the relevant and the tough stories affecting car dealers. Have questions for DrivingSales News? Reach the team at news@drivingsales.com.

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